Daily US Opening News And Market Re-Cap: September 20

S&P downgraded the sovereign rating for Italy to A from A+, with a negative outlook

According to Kathimerini, the Greek PM is considering calling for a referendum on whether Greece should continue to tackle its debt crisis within the Eurozone or by exiting the single currency. However, a Greek government spokesman denied this report

According to FT, Siemens withdrew more than EUR 500mln in cash deposits from a large French bank two weeks ago and transferred it to the ECB. However, Siemens denied the FT article and termed it as factually incorrect

According to two sources, a big market-making state bank in China's onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks

A Greek government source commented that the country has fully paid EUR 769mln in bond coupons due on September 20th. Meanwhile, the Greek 13-week T-Bill auction observed a healthy bid

Market Re-Cap

A raft of negative news flow dented appetite for risk during the Asian session led by a sovereign downgrade of Italy by S&P to A from A+, with a negative outlook. In other news, Kathimerini wrote that the Greek Prime Minister is considering a referendum on EUR, whereas an article in FT said that Siemens has withdrawn more than EUR 500mln of cash deposits from a large European bank and has transferred it to the ECB. Meanwhile, according to two sources, a big market-making state bank in China's onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks, including Societe Generale, Credit Agricole and BNP Paribas, which further weighed on risk-appetite. However, during the European session, Siemens denied the FT article and termed it as factually incorrect, whereas a Greek government spokesman denied the report of a referendum on EUR, which prompted a reversal in market sentiment. Risk-appetite strengthened further after a Greek government source commented that the country has fully paid EUR 769mln in bond coupons due on September 20th. As the session progressed European equities gained strength, which weighed on Bunds and the Italian/German 10-year government bond yield spread narrowed partly on the back of market talk that the ECB is buying in the Italian government bonds. In the forex market, the USD-Index pared its overnight gains during the European session due to enhanced risk-appetite and as market participants looked ahead to the FOMC rate decision, due to be released tomorrow, where anticipation is for the Fed to opt for further easing. Weakness in the USD-Index rendered support to EUR/USD, GBP/USD and commodity-linked currencies.

Moving into the North American open, markets look ahead to housing data from the US together with the API inventories report. Developments in the Eurozone will also be closely watched as the Greek government resumes its conference call with the Troika at 1800BST.

Asian Headlines:

Japan’s government maintained its assessment of the economy in September saying a sustained upturn in production and exports continued while flagging risks posed by slackening global growth, the JPY strength and volatile stock markets. (RTRS)

In other news, China will keep its export policies stable, a spokesman of the Commerce Ministry said, but warned that trade frictions will have a big impact on the country’s exports. In related news US trade officials will announce a major trade enforcement against China on Tuesday. (RTRS)

US Headlines:

China will continue to acquire US treasury bonds as it has few other alternatives to invest its foreign-exchange reserves. (People’s Daily)

EU and UK Headlines:

S&P lowered Italy’s sovereign credit ratings to A from A+, with a negative outlook. S&P said the downgrade reflects its view of Italy’s weakening economic growth prospects and that Italy’s fragile governing coalition and policy differences within parliament will likely continue to limit the government’s ability to respond decisively. S&P said it could lower the ratings further if, against its expectation, the current account deficit remained higher than 10% of current account receipts beyond 2013. (RTRS)

In other news, Brazil will propose that it and other large emerging market countries make new funds available to the IMF as a way to help ease the crisis in the Euro zone according to an official. Brazil could make up to USD 10bln of its own money available to help Europe through various channels, including the IMF or by making bond purchases. (RTRS)

Nikkei (-1.61%) closed lower amid risk-averse trade after S&P downgraded the Italian sovereign rating together with concerns surrounding the Eurozone debt and European banks. Also, Kathimerini wrote that the Greek Prime Minister is considering a referendum on EUR, whereas an article in FT said that Siemens has withdrawn more than EUR 500mln of cash deposits from a large European bank and has transferred it to the ECB. However, during the European session, the Kathimerini report was denied by a Greek government spokesman, whereas Siemens said that the FT article was factually incorrect. Risk-appetite strengthened further after a Greek government source commented that the country has fully paid EUR 769mln in bond coupons due on September 20th, together with a well-bid 13-week T-Bill auction from Greece. Weakness in the USD-Index provided support to the basic materials sector, and moving into the North American open, equities continue to trade higher, with basic materials and utilities as the best performing sectors.

FX

The USD-Index pared its overnight gains during the European session due to enhanced risk-appetite and as market participants looked ahead to the FOMC rate decision, due to be released tomorrow, where anticipation is for the Fed to opt for further easing. Weakness in the USD-Index rendered support to EUR/USD and commodity-linked currencies. In other news, strength was observed in AUD after minutes of the RBA’s September 6th policy meeting offered no hint that the central bank was considering cutting rates.

COMMODITIES

WTI and Brent crude futures traded higher during the European session amid risk-appetite and as the USD-Index weakened.

Oil & Gas News:

• Leading oil exporter Saudi Arabia produced 9.606 MBPD of crude in July, 207,000 BPD less than in June, according to the latest official data published by the Joint Data Initiative (JODI).• OPEC Secretary General said WTI-Brent price differential is big, adding that he is confident of an output agreement in December. OPEC members no longer consider USD 75 a barrel as an ideal price. He also said forward cover is now at 58 days, and is 5-6 days above 5-year average.

Geopolitical News:

• Syrian forces shot dead at least six villagers and two rebel soldiers on Monday, north of the city of Homs. Syrian security forces have killed 2,700 people since anti-government protesters started six months ago, the United Nations human rights office said.• Rockets hit a protest camp in Yemen’s capital Sanaa, killing at least two people on Tuesday according to witnesses.